Spotlight - The future for Russian Standard
Absolut vodka may have been eating up the column inches this year, but another privately-owned Russian producer has also been hitting the headlines. Last week, Chris Mercer visited the home of Russian Standard, St Petersburg, to discover first hand what plans the company has in place to stay on the front pages.
Russian Standard vodka's rapid rise to prominence in its home market has got the firm looking for weaknesses among the big hitters of the international vodka scene.
As a young, private company, Russian Standard remains a relatively unknown quantity abroad. There is scepticism among some observers about its ability to take a shot at the likes of Absolut, Stolichnaya and Grey Goose on the international stage.
Yet, the group's home form looks impressive. Its ten years of existence have coincided with a period of sustained economic growth in post-Soviet Russia, and in that time the firm has emerged from obscurity to become what it claims to be the number one premium vodka brand in the country. It claims to hold a 60% market share, and even boasts that "we have no rivals".
Domestic sales reached around 1m nine-litre cases last year, and global sales have risen from 1m in 2005 to around 1.9m in 2007. The group brought production in-house for the first time in 2006, opening a new US$60m distillery, including bottling facilities, on the outskirts of St Petersburg.
How has the meteoric rise on the home market been achieved? Certainly, Russian Standard has the sleek image to sit alongside modern Russian capitalism and all of the flashy extravagance that goes with it. The brand's new website, launched last month, offers a glimpse into the cocoon of luxury occupied by the country's new elites.
There is also clearly finance and good contacts available. Group founder Roustam Tariko knows a lot of people, and presides over his own Russian Standard bank, which was last year highly rated by Standard & Poor's.
Premium ingredients and positioning have also been a big factor. "You cannot fool Russians with vodka," said Andrei Saveliev, Russian Standard's manager for UK and Ireland. The firm prides itself on using high quality winter wheat to produce vodka in line with rules set down by Dmitry Mendeleev, the "father of Russian vodka", in 1894.
In one high-end retailer in Moscow, Russian Standard Original retailed for RUR510 (US$20), more than twice the price of many other brands around it. Russia's premium vodka category is rising by 15-20% annually, claimed the firm, compared to a decline in overall vodka sales.
Preston Mendenhall, Russian Standard's communications director, said the group's success in Russia, and growing success abroad, was down the three main factors.
"We created a high quality product in a market where none existed, we have our own production facility which gives us the flexibility to meet demand in Russia and around the world, and we have the financial resources to make the brand a success."
The group concedes it has not given as much priority to overseas, but only because its plan was always to become number one on the home market, before attempting to win consumers abroad. It believes that this will support its key message of Russian Standard being the authentic Russian vodka, compared to the Stolichnayas or Smirnoffs of this world.
Russian Standard global cases sales remain way behind the really big hitters, however. Absolut, for example, sold more than 11m cases last year, compared to Russian Standard's estimate of 2.2 to 2.5m for 2008. There is also feverish competition for space in key markets like the UK and US.
Still, Russian Standard claims to have Absolut in its sights in the UK, and has set aside an GBP8m (US$14.5m) marketing budget in the country this year, which is set to include sponsorship of the Q Music Awards in October. The company's UK distributor, First Drinks Brands, owned by Scotch whisky firm William Grant & Sons, has catapulted Russian Standard into the top five vodka brands in its first year.
Aggressive expansion appears to be the firm's ethos. It already exports to more than 50 countries and, in a few weeks, plans to launch in Spain. Portugal will follow shortly after, just-drinks understands.
There are questions that remain unanswered, however. For example, why did former chief executive Carlo Radicati leave his post this summer after barely a year in the job? There are rumours, too, that high costs and rapid expansion have been eating into the company's profitability. As for foreign markets, can Russian Standard shout loud enough to make its voice heard amid the vodka din in key countries like the UK and US? It is hard to find detailed answers to these queries.
The rising cost of capital investment in Russia may be another concern going forward, as the group prepares to begin work on a new distribution facility next to its distillery.
Russians are fond of talking about their Government's hefty cash reserve, but private companies looking to raise capital are facing an increasingly tight market.
Analysts estimate that up to US$20bn of foreign investment may have been pulled from Russia during August, partly as a result of the country's conflict with Georgia, but also due to financial turmoil in western economies.
This week, trading was suspended for one hour on Moscow's RTS stock market, because of sliding value. As oil prices begin to fall and western economies tighten their belts, Russia's sustained growth looks increasingly precarious. Russian president Dmitry Medvedev has promised to dip into the Government's reserve to keep things afloat.
The knock-on effect of this could be a tougher lending environment in Russia, making loans for building work and upgrades more expensive.
Russian Standard remains steadfastly optimistic about this and many other challanges, however. There are several reasons why its international growth plan could fail, but it is hard to argue with the company's record so far.
Russian Standard brands include: Russian Standard Original, Platinum and Imperia, the latter of which competes against premium brands like Grey Goose in the US. The group is soon to launch Russian Standard Gold, a vodka containing ginseng, in Russia.
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